GBP/USD – Price Bottom vs. Falling Trendline

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gbpusd daily chart 2/11

Backdrop: Since falling to about 1.4950, GBP/USD has been consolidating. The 4H chart shows that last week, cable broke out above this consolidation when it pushed above 1.5270. Some might even see a break above 1.5220 as a breakout signal.

GBP/USD 4H Chart 2/11
GBPUSD 4h chart 2/11
(click to enlarge)

US Jobs Data and Reaction: The rally stalled at 1.5350, and price retreated after a strong US NFP jobs report. The thing is, the pullback has so far been respectful of a previous price bottom. Note that GBP/USD is still trading above the 200-, 100-, and 50-period SMAs in the 4H chart. The fact that price is treating the 200-period SMA as support is a bullish slingshot signal ,especially if price can push above 1.5270, which would expose the 1.5350 area in the near-term.

Also note that the RSI has held above 40, which reflects maintenance of the nascent bullish momentum. Even if price does edge a bit lower, let’s say towards 1.5150, the bullish outlook would still be valid, especially if the 4H RSI also remains above 40.

If price breaks below 1.51 however, it would be likely that last week’s bullish breakout was a “clear out”, which suggests further downside and puts pressure towards the 1.4950-1.50 lows. Note that below 1.51, price would have returned below the SMAs.

GBP/USD Daily Chart 2/11
gbpusd daily chart 2/11
(click to enlarge)

Price Bottom vs. Falling Trendline: In the daily chart, we can see the battle of bullish price action formed by a price bottom against a falling trendline that comes from the July 2014 high at 1.7190. There is also the 50-day SMA here reinforcing 1.5350 as resistance. A break above 1.5350 thus clears a couple of visual resistance levels and can expose the 1.56 support/resistance level from November and December.

Key Supports: Now, I said if price can hold above 1.5150 the bullish outlook is still valid, but even a break below 1.52 can introduce the bearish outlook especially if price is not able to return back above that 1.5270 area which has been common resistance since January.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.